Recent studies find evidence that small funds outperform large funds. This fund size effect is commonly hypothesized to be caused by transaction costs. Due to the lack of transactions data, prior studies have investigated the transaction costs theory indirectly. Our study, however, analyses the daily transactions of active Australian equity managers and finds aggregate market impact costs incurred by large managers are significantly greater than those incurred by small managers. Furthermore, we show large managers exhibit preferences for trade package formation and portfolio characteristics consistent with transaction cost intimidation. We analyse the interaction between transaction cost intimidation and the fund size effect, and document that large managers pursuing a highly active trading strategy suffer more from fund size, than large funds following a more passive strategy. This suggests the fund size effect is related to transaction costs, as trading activity is a good proxy for expected market impact. Finally, based on a simulation experiment, we find that transaction cost intimidation is at least as important as the increase in market impact costs due to fund size.

Recent studies find evidence that small funds outperform large funds. This fund size effect is commonly hypothesized to be caused by transaction costs. Due to the lack of transactions data, prior studies have investigated the transaction costs theory indirectly. Our study, however, analyses the daily transactions of active Australian equity managers and finds aggregate market impact costs incurred by large managers are significantly greater than those incurred by small managers. Furthermore, we show large managers exhibit preferences for trade package formation and portfolio characteristics consistent with transaction cost intimidation. We analyse the interaction between transaction cost intimidation and the fund size effect, and document that large managers pursuing a highly active trading strategy suffer more from fund size, than large funds following a more passive strategy. This suggests the fund size effect is related to transaction costs, as trading activity is a good proxy for expected market impact. Finally, based on a simulation experiment, we find that transaction cost intimidation is at least as important as the increase in market impact costs due to fund size.

OPUS Help

OPUS

OPUS (Open Publications of UTS Scholars) is the UTS institutional repository. It showcases the research of UTS staff and postgraduate students to a global audience. For you, as a researcher, OPUS increases the visibility and accessibility of your research by making it openly available regardless of where you choose to publish.

Items in OPUS are enhanced with high quality metadata and seeded to search engines such as Google Scholar as well as being linked to your UTS research profile, increasing discoverability and opportunities for citation of your work and collaboration. In addition, works in OPUS are preserved for long-term access and discovery.

The UTS Open Access Policy requires UTS research outputs to be openly available via OPUS. Depositing your work in OPUS also assists you in complying with ARC, NHMRC and other funder Open Access policies. Providing Open Access to your research outputs through OPUS not only ensures you comply with these important policies, but increases opportunities for other researchers to cite and build upon your work.

OPUS archives UTS research submitted for Higher Education Research Data Collection (HERDC) and Excellence in Research for Australia (ERA). It also stores digital theses and forms of scholarship that do not usually see formal publication.

How can you deposit works in OPUS?

When you claim (or enter) your research in Symplectic Elements, simply upload a copy of your work which can be made openly available. Symplectic provides information on which version of your work to upload. If you are unsure, please supply a copy of the Accepted Manuscript version. Ensure you check the box to "agree to the OPUS license terms".

Once uploaded, your works are automatically sent to OPUS and placed temporarily in Closed Access until reviewed by UTS Library staff.